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John McCain on the Mortgage Crisis. Strongly Opposes Bailouts Except When They Are Needed

John McCain gave another of his 'pattoned' straight talks today this time, in Santa Ana, California. McCain was attempting to burnish up his economic credentials. The subject was the subprime mortgage/ steep drop in housing prices crisis. His speech offered little more than the usual Bush bromides; tough love for the small homeowner but forgiveness for the investment banker solution, favored by the administration and the Federal Reserve Board. Here is McCain:

Let's start with some straight talk:

I will not play election year politics with the housing crisis. I will evaluate everything in terms of whether it might be harmful or helpful to our effort to deal with the crisis we face now.

I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers. Government assistance to the banking system should be based solely on preventing systemic risk that would endanger the entire financial system and the economy.

In other words, McCain strongly opposes bailouts except when they are needed. This won't give investment bankers much pause, who already make huge and obscene bonuses for 'gambling', by taking on risky mortgages when the housing prices and then the hedge funds go up, and when both go down, the government can backstop their losses to prevent 'systemic risk'.

Digby, in her post 'Grown-up In Charge'
was not any more impressed when McCain talked about some of his unrealistic and simple-minded details for resolving the crisis.

John McCain is going to solve our economic problems by convening a meeting of the nation's accountants.

He also thinks that people should be forced to put bigger down payments on their houses, but he also that mortgage lenders should be like GM after 9/11 and give zero down payment loans.

Oh, and the banks don't trust each other and now they don't trust the people. Prices go down as well as up. He will not allow dogma to override common sense.

If you liked having the idiot George W. Bush in charge during a national security crisis, you're going to love having the moron John McCain in charge during an economic crisis.

Io other words, if McCain were in charge, just as he would solve the Iraqi crisis between the Shiites and the Sunnis, he would get the major lenders and borrowers in a room, and say "knock it off, let's cut the bull...sh.t!".

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Comments (2)

Steve Crickmore:

Up until now McCain's strategy on economics has been pretty much along the lines of Dr. Johnson's dictim, "Better to be thought a fool, than to open one's mouth and remove all doubts".

In live 90 minute televison debates with the Democrat nominee,'mano a mano' he won't have that luxury.

Mark Kleiman in his analysis of McCain's speech comes to pretty much the same conclusion we did. 'Don't know much about Economics'

John McCain's housing-crisis speech is best described as a nothingburger.

McCain thinks that big mortgage lenders should provide loans to homeowners whose mortgages are in default. He doesn't explain how that's supposed to be profitable for the lenders, why if it is profitable for the lenders they're not doing it now, or why if it's not profitable for the lenders the people who run, but don't own, those institutions should do it anyway.

It might be reasonable to ask banks to go easy on their own borrowers. But equally of course the slicing and dicing of risk means that the outfit that services a mortgage often is just an agent for others, and has no authority to renegotiate the terms of the loan.

So McCain's message to the victims of predatory lending practices and the owners of homes in half-finished subdivisions is: Good luck, suckers! You're on your own.

Equally deficient is McCain's analysis of how we got where we are. Yes, there was folly by lending institutions, fraud by agents, and excessive optimism among buyers. But the folly wasn't a purely psychological phenomenon; the executives of those outfits, driven by the demand to "make the numbers" and (over)compensated via incentive schemes that encouraged them to take big risks with other people's money, did so with abandon. The notion that we could solve the underlying problem without addressing corporate governance and executive pay seems rather bizarre.

I agree the speech was mostly nonsensical.

It doesn't concern me that McCain knows little about economics, and it actually is encouraging that he admits it. The most dangerous thing would be a President who thinks he can "fix" or "perfect" the economy. Better one who does his job and allows the markets and the FRB to do theirs.

My concern is that McCain's advisers allowed him to go out and give this speech. Apparently the only purpose was to "show he cares" about the economic difficulties. It seems to me he could easily have conveyed such a sentiment without all the gibberish.

Frankly, it is not helpful for any of the candidates to go about proposing their own "solutions" to a problem which would most certainly be resolved well before they take office. In fact, these floating bailout proposals only delay a resolution, as various players wonder if they might get a better deal by holding out for the vapid promises.


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Editors: Lee Ward, Larkin, Paul S Hooson, and Steve Crickmore

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